CAPITAL MARKETS

 

1- FOREX KERB WATCH

2- COT WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE
6. PAKISTAN WEEKLY REVIEW
 

 

STOCK MARKET AT A GLANCE

 

By SHABBIR H. KAZMI
Updated June 04, 2005

 

 

After the lapse of two weeks, KSE-100 index finally bounced back on Monday with the news on KSE board meeting SECP to discuss future trading rules and margin financing. Market reacted negatively to the bomb explosion in Karachi Tuesday, however, the privatization of NRL later on turned the market sentiment. On Wednesday, the market remained positive throughout the day where NRL and Attock group stocks along with the banks having exposure in NIT units (NBP, BoP and Faysal Bank) outperform the market. Relaxation in futures rules and rumors on PTCL privatization price led the market on Thursday. The market underwent into a correction phase on Friday as investors started booking profits. Rounding up the week, the KSE-100 index gained 746.02 points over the last week.

OUTLOOK FOR THE FUTURE

The delay in privatization of PTCL is likely to be a major negative for the market initially. PTCL has been leading the uptrend at the KSE since late. The next week will also begin with the announcement of the Federal Budget FY06 on Monday, (06-Jun-2005) evening which is after the closing of first trading session, however, we may see some speculations over the rumors over the market-related budget measures. Overall we expect the budget to be a non-event for the market as the market is facing bigger issues than the budget, however, an increase in CVT is likely to hurt the day traders as cost factor goes up and arbitrage opportunities decrease. Phasing out of badla from 08-Jun-2005, almost immediately after the announcement of the budget would be a major event for the market than the budget.

With non-availability of margin financing, badla phase out is likely to lead to a liquidity crunch in the stock market. This will dry out volumes in the ready market. However, with relaxation in future contracts (applicable from the next month) we may expect some volumes to shift from ready to future market from the next month. We advice investors to remain cautious and focus on fundamentally strong scrips like Callmate, Fauji Fertilizer, KAPCO, Fauji Fertilizer Bin Qasim and Pakistan Oilfields.

FUNDAMENTAL CHANGES

The major developments this week were:

•In the last month, private credit offtake stood at PkR10bn as compared to monthly average of PkR40bn for the first nine months.

•According to the data released by State Bank of Pakistan (SBP), trade account deficit was recorded at USD4,824mn in the first 10M of current fiscal year.

•Total Foreign Direct Investment (FDI) was recorded at US$891.5mn (17.2% higher YoY) in the first 10M of current fiscal year.

•Prime Minister Shaukat Aziz has formed a high level tripartite committee comprising secretaries of IT & Telecom, Privatization Commission and Interior to hold talks with representatives of protesting PTCL employees and resolve the issue.

•Privatization Commission (PC) has received first installment of PkR3.348bn or 25% of the privatization price for Pak-Arab Fertilizer.

•Large Scale Manufacturing (LSM) registered an impressive growth of 16.41% in the first 10M of current fiscal year as compared to the full-year target of 12.0%.

•The Oil Companies Advisory Committee kept domestic petroleum prices unchanged.

•State Bank of Pakistan (SBP) maintained the Export Finance Scheme (EFS) for the month of June.

•Central Board of Revenue (CBR) has collected PkR495bn in the first 11 months of current fiscal year.

•Qazi Hussain Ahmed has threatened to quit the position of alliance chief.

•The SECP finally showed some relaxation and has increased per broker trading limit on futures counter to 3% from the existing limit of 1% of free float.

•The government is considering buying back the sovereign guarantee made available to Pakistan PTA along with removal of General Sales Tax in the upcoming budget.

•Cement sales grew by 18% to 1.426mn tons during the month of May-2005.

•Dr. Salman Shah and Dr. Ashfaque Khan would be releasing the Economic Survey for the year 2004-05 on Saturday 04-Jun-2005.

•According to the Chairman of National Clearing Company of Pakistan (NCCP), eight commercial banks to start Margin financing on 135 companies from 03-Jun-05.

•Public subscription for 10% shares of United Bank Limited with 5% green shoe option begins on Friday 03-Jun-2005 and will end on 08-Jun-2005.

THIS WEEK'S TOP STORIES

BUDGET FY06 — SUSTAINING THE GROWTH MOMENTUM

The Federal Budget FY06 is scheduled to be presented in the National Assembly on 6-Jun-05. The expected measures in the upcoming budget are likely to be aimed at sustaining growth momentum generated over the last couple of years. We expect major thrust of the budget to be on infrastructure development, which is likely to lead to a higher Public Sector Development Program. However, the real test would be actual utilization of this allocation as the government has fallen short of the target during the last three years. The major theme of the budget is likely to remain "reducing the cost of doing business in Pakistan".

BUDGET FY06 — GAINERS & LOSERS

We are expecting Cement, Fertilizer, Private banks and Textile sectors to be the major gainers of the upcoming budget while Autos would be the loser. (I) PkR306bn allocation to PSDP is expected to boost cement demand; (II) Increase in support prices would have a positive impact on farmer's purchasing power and hence fertilizer demand/margins; (III) The upcoming budget is likely to provide another positive shot in the arm for the banking sector in the form of lower tax rates, which are expected to be reduced to 38% and higher consumer spending (IV) Reduction in import duties and GST on raw materials and machinery would enable textile manufacturers to increase their competitiveness to meet growing opportunities in the post WTO era (V) Reduction in tariffs for CBUs will have a negative impact on Autos.

NRL PRIVATIZATION — FETCHING A GOOD PRICE

The successful privatization of National Refinery Limited (NRL) definitely bodes well for stock market sentiment. The privatization price came much above consensus expectations at PkR483/share. Even the differential between the prices quoted by the three bidders was significant, with the next highest bid 85% lower than the highest bid. Though the acquisition price does seem to be expensive, we are of the opinion that the strategic value of NRL was different for all three bidders. We believe that PICIC Growth Fund is the best vehicle to capitalize on the privatization of NRL. Faysal Bank, National Bank and Bank of Punjab are also likely to be indirect beneficiaries of NRL's privatization through their holding in NIT.

 

 

IMPRESSIVE FISCAL MANAGEMENT!

The sound macro management picture of Pakistan is reflected in the budgetary operations during the first 9 months of current FY. According to the data released by Ministry of Finance (MoF), Pakistan's overall budget deficit was recorded at 2.0% of GDP (PkR131.29bn) in the first 9M of current fiscal year, as compared to the full-year target of 3.2% of GDP. We believe that the cap on expenditure and increase in tax revenues is primarily responsible for the impressive fiscal management during the period. Total revenue collection was recorded at PkR634.90bn during Jul-Mar FY06. At the same time, the expenditures incurred by government was recorded at PkR766.620bn. We expect the MoF to target a budget deficit at 3.2% of GDP in the forthcoming budget with the aim of 'Sustaining GDP growth rate at 7.0% level for the next 5 years'. However, the major thrust of the next budget is likely to be on infrastructure development, which is likely to result in higher Public Sector Development Program (PSDP) spending.

EXISTING CEMENT CARTEL ARRANGEMENT EXPIRING

We are expecting 4mn tons to be added to cement capacity immediately after the expiry of the existing cement cartel arrangement on 30-Jun-2005 while another 4.5mn tons (clinker) would be added to the industrial capacity in the middle of FY06. Lucky, Dewan Hattar and Cherat Cement would be the gainers of the arrangement while Maple, and Pioneer would be the losers. On the other hand we are expecting the cement demand to grow in par with GDP growth after FY07 while the stronger-than-GDP growth phase is about to end. We maintain our underweight stance for Cement sector owing to our rising concerns our excessive supply additions widening the supply-demand gap to more than 50% after FY07.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

30.61

33.82

10.49%

Avg. Dly T/O (mn. shares)

218.57

325.06

48.72%

Avg. Dly T/O (US$ mn.)

328.87

462.72

40.70%

No. of Trading Sessions

5

5

23

KSE 100 Index

6467.15

7213.17

11.54%

KSE ALL Share Index

4273.42

4728.62

10.65%